* August c/a surplus more than halves on import growth
* Separate business sentiment indices hit 2-year highs
* Boost to chances for interest rate increase in 2009
By Cheon Jong-woo
SEOUL, Sept 29 (Reuters) - South Korea's current account surplus more than halved in August from July on the back of a recovery in imports as companies bet on a pick-up in Asia's fourth-largest economy and increased investments.
Business sentiment among manufacturers and big companies hit two-year highs, data from the government and a business lobby group showed on Tuesday, adding to hopes that the economy be able to grow faster.
Analysts and investors bet that the Bank of Korea will be the first in the G20 to raise interest rates as soon as November, although the government has urged the bank to be cautious.
"A continuous rise in imports indicates that domestic demand is recovering. The improvement is seen helping the economy sustain a growth trend along with exports," said June Park, an economist at Woori Investment & Securities.
South Korea reported a seasonally adjusted current account surplus of $1.79 billion in August, down from a revised $3.9 billion surplus in July, the Bank of Korea said.
Goods imports in August rose 7.4 percent to a seasonally adjusted $27.79 billion from the prior month, the biggest monthly gain since a 9.8 percent rise in October 2007 and a fifth consecutive monthly increase.
August's goods exports declined 1.7 percent to a seasonally adjusted $31.01 billion from July, the first monthly fall since a 5.7 percent drop in March.
BRIGHTER OUTLOOK
But a senior central bank official painted a brighter outlook for the current account saying the surplus this year may exceed the central bank's target of $29 billion.
"Exports have kept recovering while the rise in imports is relatively slow. That will help maintain a surplus trend ... the current account surplus will be bigger than the earlier forecast of $29 billion," Lee Young-bok, head of the Bank of Korea's balance of payments statistics team, told reporters.
South Korea posted a seasonally adjusted $29.09 billion current account surplus in the first eight months of the year, swinging from a $8.73 billion deficit a year ago.
With the brighter outlook, companies are eyeing more investment, separate government's data showed.
Manufacturers' business survey index (BSI) for plant investment in the fourth quarter rose to 103, the highest since the second quarter of 2008, the Ministry of Knowledge and Economy said.
Their overall business outlook for the fourth quarter also hit a two-year high of 113, the data showed.
The business outlook among major companies for October also touched a two-year high, a private survey showed.
The Federation of Korean Industries, the country's biggest lobby group for large companies, said the authorities needed to maintain accommodative policies including a rate freeze as the economy was still facing uncertainties such as a firmer won currency. (Additional reporting by Seo Eun-kyung; Editing by Jan Dahinten)